Chinese ‘cautious’ on acquisitions

ONCE BITTEN After getting burned by investments in Morgan Stanley and Blackstone, the Chinese banking regulator said industrial opportunities may be better

BLOOMBERG

Chinese banks should take a “cautious” stance toward overseas acquisitions as more losses at financial companies around the world remain to be exposed, China Banking Regulatory Commission Vice Chairman Cai Esheng (蔡鄂生) said.

“What we should be cautious on now is acquisitions of financial institutions,” Cai said in an interview yesterday on the sidelines of a financial forum in Beijing. “Industrial acquisitions, at home or abroad, present better opportunities.”

Cai’s remarks come two days after reports that Bank of China Ltd (中國銀行) may have to delay a planned US$342 million investment in La Compagnie Financiere Edmond De Rothschild as China’s banking regulator withholds approval. A delay would highlight a tougher stance by the government after investments in foreign financial firms led to about US$13 billion in paper losses over the past year.

“We can’t simply say we’re calling off or not calling off” the overseas acquisition plans of all banks, Cai said. “It’s not just about a policy stance, there are also many specific issues,” he said, without giving details.

The commission supported acquisitions as long as they were in line with the market’s development and could help improve the competitiveness of Chinese banks, he said.

China Investment Corp (中國投資公司), the nation’s US$200 billion sovereign wealth fund, paid US$5 billion last year for 9.9 percent of Morgan Stanley and invested US$3 billion in Blackstone, the world’s largest private-equity firm. Both New York-based companies have lost more than two-thirds of their market value since the investments were made.

China Development Bank (國家開發銀行), which funds the nation’s public works, spent 2.2 billion euros (US$2.9 billion) for 3.1 percent of Barclays Plc in July of last year and bought another £136 million (US$203 million) of stock in June. The combined holding, which was diluted to 2.97 percent after Barclays’ latest round of fundraising last month, is now worth US$582 million.

China’s top regulator also said yesterday that Chinese insurers should focus on improving management amid the current financial crisis, rather than looking for overseas acquisitions.

Overseas insurers such as American International Group Inc “look very attractive now” after their valuations had fallen, however there may be “deep-rooted problems” in those insurers’ balance sheets, Wu Dingfu (吳定富), chairman of the China Insurance Regulatory Commission, said at a financial forum in Beijing.

It would also be difficult to retain staff and integrate different corporate cultures, he said.

Ping An Insurance (Group) Co (平安保險), the nation’s second-largest insurer, said on Oct. 2 it had scrapped a planned purchase of half of Fortis’ asset management unit after the industry regulator withheld approval.

The Chinese insurer, whose shares have fallen 76 percent in Shanghai trading this year, already bought a 4.9 percent stake in Fortis for 1.81 billion euros in November of last year, and booked a 7.8 billion yuan (US$1.1 billion) loss on the stake in the third quarter.